The U.S. Supreme Court will grant a hearing on a case related to state vs. federal authority to regulate operating subsidiaries of nationally chartered banks.
In a Sixth Circuit U.S. Court of Appeals decision in December, Judge Boyce F. Martin Jr. affirmed a district court judgment which found that federal regulations “preempt conflicting Michigan laws” relating to authority of federal bank subsidiaries.
The case, Wachovia Bank v. Watters, was brought by Linda A. Watters, commission of the Michigan Office of Insurance and Financial Services.
Wachovia Bank, a national banking firm, launched Wachovia Mortgage in January 2003 as a wholly owned operating subsidiary in Michigan, according to the court ruling. In April 2003, Wachovia Mortgage advised the state of Michigan that it was surrendering its lending registration in the state, and the state’s commissioner advised Wachovia Mortgage that the company would no longer be authorized to conduct mortgage lending business in the state as of July 2003.
Wachovia then filed a lawsuit seeking to declare that the Michigan statues are preempted by federal banking law and Office of the Comptroller of the Currency regulations.
The National Association of Realtors trade group, which has waged an aggressive lobbying campaign for several years in an effort to check the power of federal financial institutions and prevent the entry of these banking entities from engaging in the business of real estate brokerage, issued a statement this week in support of the Supreme Court’s decision to review the Court of Appeals ruling.
“We’re glad the U.S. Supreme Court is taking a look at this case. The OCC went too far when it created a new standard to exempt operating subsidiaries of national banks,” said Thomas M. Stevens, NAR president senior vice president of NRT Inc., in a statement.
“We believe that the OCC has misused its power and misinterpreted federal law by extending preemption privileges to operating subsidiaries, such as mortgage companies, allowing them to circumvent state real estate lending and licensing laws.”
According to the trade group’s statement, “NAR opposes the OCC preemption regulation because it creates an uneven playing field. Realtors involved in real estate lending related activities, such as appraisal, home inspection, mortgage and title services are at a disadvantage with national banks and their operating subsidiaries, which do not have to abide by and bear the costs of state licensing and compliance regulations.”
The national Realtor group and the Michigan Association of Realtors trade group filed a brief when the case was appealed, and a group of 30 state attorneys general had also asked the Supreme Court to review the case.
The state of Michigan contended that the state “would be precluded from protecting its citizens from any inappropriate actions taken by state incorporated non-bank subsidiaries of national banks that operate in the mortgage industry.” Though the appellate court stated, “Michigan’s recourse (and the recourse for the other 30 attorney generals) is with Congress.”
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